Equity

3 Months Ended

Sep. 30, 2018

Equity [Abstract]

EQUITY

Note 9. EQUITY

Stock issuance:

On March 12, 2018, the Company entered into a Securities Purchase Agreement with investors pursuant to which the Company sold to the investors in a registered direct offering, an aggregate of 2,000,000 shares of the common stock of the Company, no par value per share, at a price of $1.50 per share for aggregate gross proceeds of $3 million. The placement agent received a cash commission fee equal to 7.5% of the gross proceeds. The offering closed on March 14, 2018. The offering of the 2 million shares was made pursuant to the Company’s effective shelf registration statement on Form S-3 (File No. 333-222098), which was originally filed with the SEC on December 15, 2017, and was declared effective by the SEC on February 16, 2018. The Company agreed in the purchase agreement that it would not issue any common stock for 60 calendar days following the closing of the offering and each of the Company’s executive officers and directors agreed to a lock-up period of 60 days from the date of the purchase agreement.

Concurrently with the registered direct offering closed on March 14, 2018, the Company sold the investors Series “A” warrants to purchase up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share and Series “B” warrants to purchase up to an aggregate of 2,000,000 shares of common stock at an exercise price of $1.75 per share. The sale of the Series “A” warrants and Series “B” warrants is a private placement in reliance upon an exemption afforded under Regulation D of the Securities Act. The Series “A” warrants are exercisable as of September 14, 2018, and expire five and a half (5.5) years from the date of issuance. The Series B warrants are exercisable as of September 14, 2018, and expire thirteen (13) months from the date of issuance. The exercise price and the number of shares of common stock issuable upon exercise of the Warrants are subject to adjustment in the event of stock splits or dividends, or other similar transactions, but not as a result of future securities offerings at lower prices. Net proceeds to the Company from the sale of the shares and the warrants after deducting offering expenses and placement agent fees were $2,585,091.

On April 26, 2018, the Company filed a registration statement on Form S-1 (“S-1”) to register the resale of an aggregate of 4,000,000 shares of common stock underlying the Series A and B Warrants mentioned above. The S-1 was declared effective by the SEC on May 8, 2018.

The warrants are classified as equity since they qualify for exception from derivative accounting as they are considered to be indexed to the Company’s own stock and require net share settlement. The fair value of the warrants of $1,074,140 is valued based on the Black-Scholes-Merton model and is recorded as additional paid-in capital from common stock based on the relative fair value of proceeds received using the following assumptions:

	Series A			Series B
Annual dividend yield		-			-
Expected life (years)		5.5			1.08
Risk-free interest rate		2.72	%		2.16	%
Expected volatility		110.31	%		73.88	%

Following is a summary of the status of warrants outstanding and exercisable as of September 30, 2018: 

	Shares		Weighted Average Exercise Price
Warrants outstanding, as of June 30, 2018		4,000,000	$	1.75
Issued		-		-
Exercised		-		-
Expired		-		-
Warrants outstanding, as of September 30, 2018		4,000,000	$	1.75
Warrants exercisable, as of September 30, 2018		4,000,000	$	1.75

Warrants Outstanding	Warrants Exercisable		Weighted Average Exercise Price		Average Remaining Contractual Life
2018 Series A 2,000,000		2,000,000	$	1.75	4.96 years
2018 Series B 2,000,000		2,000,000	$	1.75	0.54 years

Stock based compensation:

In March 2017, the Company entered into a consulting and advisory services agreement with consulting entity, who provides management consulting services that include marketing program design and implementation and cooperative partner selection and management. The service period began March 2017 and will end February 2020. The Company issued 250,000 shares of common stock as the remuneration for the services, which were issued as restricted shares at $2.53 per share on March 22, 2017 to the consultant.  These shares were valued at $632,500 and consulting expense were $52,708 and $52,709 for three months ended September 30, 2018 and 2017, respectively.

On October 23, 2017, the Company issued to its employees 130,000 shares of its restricted common stock valued at $2.80 per share. One quarter of the total number of common shares became vested on each of November 16, 2017, February 16, 2018, May 16, 2018 and August 16, 2018.  These shares were valued at $364,000. $91,000 was recorded as compensation expense for the three months ended September 30, 2018.

On October 27, 2017, the Company issued 200,000 shares of restricted common stock on the grant date with a fair value of $548,000 to a consulting company pursuant to a consulting agreement. The scope of services primarily covered advising on business development, strategic planning and compliance during the one-year service period from October 17, 2017 to October 16, 2018. $137,000 was recorded as compensation expense for the three months ended September 30, 2018.

On June 7, 2018, the Company issued 400,000 shares of common stock with a fair value of $508,000 to a consulting entity pursuant to a service agreement. The scope of services primarily covers legal consultation in PRC during the two-year service period from July 2018 to June 2020. The Company recorded legal expense of $63,500 for the three months ended September 30, 2018.

On September 21, 2018, the Company issued 430,000 shares of common stock valued at $1.10 per share on the grant date with a fair value of $473,000 under the 2014 Stock Incentive Plan to three employees, vesting immediately. The Company recorded compensation expense of $473,000 for the three months ended September 30, 2018.

$817,208 and $62,374 were charged to general and administrative expenses during the three months ended September 30, 2018 and 2017, respectively.

Stock Options:

The issuance of the Company’s options is exempted from registration under the Securities Act of 1933, as amended (the “Securities Act”). The Common Stock underlying the Company’s options granted may be sold in compliance with Rule 144 of the Securities Act. Each option may be exercised to purchase one share of the common stock of the Company, no par value per share (the “Common Stock”). Payment for the options may be made in cash or by exchanging shares of Common Stock at their fair market value. The fair market value will be equal to the average of the highest and lowest registered sales prices of Company Stock on the date of exercise.

The term of the 10,000 options granted in 2013 is 10 years and the exercise price is $2.01. The total fair value of the options was $19,400. All options were vested as of June 30, 2018.

Pursuant to the Company’s 2014 Stock Incentive Plan, effective on July 26, 2016, the Company granted options to purchase 150,000 shares of Common Stock to two employees with a one-year vesting period, one half of which vested on October 26, 2016, and the other half on July 26, 2017. The exercise price of the 150,000 options is $1.10, which was equal to the share price of the Company’s Common Stock on July 26, 2016. The grant date fair value of such options was $0.77 per share. The fair value was calculated using the Black-Scholes options pricing model with the following assumptions: volatility of 99.68%, risk free interest rate of 1.15%, and expected life of 5 years. The total fair value of the options was $115,979. 75,000 of these options were exercised in February 2017. In accordance with the vesting periods, $0 and 9,665 were recorded as general and administrative expenses related to these options for the three months ended September 30, 2018 and 2017, respectively.

A summary of the options is presented in the table below:

	Shares		Weighted Average Exercise Price
Options outstanding, as of June 30, 2018		85,000	$	1.21
Granted		-		-
Exercised		-		-
Cancelled, forfeited or expired		-		-
Options outstanding, as of September 30, 2018		85,000	$	1.21
Options exercisable, as of September 30, 2018		85,000	$	1.21

Following is a summary of the status of options outstanding and exercisable at September 30, 2018:

Outstanding Options					Exercisable Options
Exercise Price		Number		Average Remaining Contractual Life	Average Exercise Price		Number		Average Remaining Contractual Life
$	2.01		10,000	4.34 years	$	2.01		10,000	4.34 years
$	1.10		75,000	2.82 years	$	1.10		75,000	2.82 years
			85,000					85,000